AMBIGUOUS USE OF 'DISCRIMINATION' FAVORS INSURED

Posted On: Sep. 20, 1998 12:00 AM CST

A commercial umbrella liability insurance policy covering "discrimination" was ambiguous, according to the 7th U.S. Circuit Court of Appeals and, thus, would be interpreted to obligate an insurer to defend against charges of price discrimination.

G. Heileman Brewing Co. Inc. purchased an umbrella liability policy from Federal Insurance Co. Heileman subsequently went bankrupt and was purchased by The Stroh Brewing Co. The policy covered "personal injury," defined in part as "humiliation or discrimination." The term "discrimination" was not defined in the policy.

In June 1994, wholesale beer distributor Calumet sued Heileman for discrimination, basing its claim on Heileman's pricing practices. Federal Insurance Co. declined both coverage and the duty to defend, arguing that "price discrimination" was a term of art describing conduct not included in coverage for "discrimination." Heileman then sued the insurer, seeking coverage. Federal countersued, seeking a declaration that there was no coverage. The trial court agreed with the insurer.

The appellate court concluded that the term "discrimination" as used in this policy was ambiguous. The court said it must interpret the term in favor of coverage and against the insurer. The court emphasized that "discrimination," as used in the policy, encompasses Calumet's allegations and the insurer had a duty to defend. The trial court decision was reversed.

A health insurance plan is liable for the medical treatment of an injured plan member charged with committing an illegal, non-occupational act, the 7th U.S. Circuit Court of Appeals ruled.

The allegedly illegal act that led to the member's injury did not bar enforcement of summary plan language in the Employee Retirement Income Security Act health plan that covered his gunshot wounds, the court found.

Monroe Williams was shot five times in the legs by a Gary, Ind., police officer after demonstrating aggressive behavior toward the officer. His medical bills totaled more than $200,000, all of which his ERISA health insurance plan, the Midwest Operating Engineers Welfare Fund, refused to cover.

As with most ERISA-governed plans, participants received only a plan summary. The plan summary stated that the fund would cover hospital charges for room and board if required for hospitalization due to a non-occupational injury or illness.

The plan summary did not define "injury." However, "injury" and "accident" were described in the plan itself as bodily injury resulting from an accident. The fund denied coverage, stating Mr. Williams' "injury did not arise from an 'accident.' " Mr. Williams sued and lost in the trial court.

The appellate court said that, in the event of a discrepancy between the coverage promised in the summary plan description and that provided in the policy, the member is entitled to claim the former. "This is especially the case where, as here," the court said, "the summary contains a rather glaring omission."

Furthermore, the court said Mr. Williams' conduct could not bear any realistic relation to his interpretation of the summary. The court pointed out that it was not credible that Mr. Williams' actions against the police officer could ever have been affected by the type of health insurance Mr. Williams believed he possessed. The trial court decision was reversed, and the insurer was held liable for coverage.

An employee's psychological injury suffered after a supervisor forced her to engage in non-consensual sexual intercourse was compensable under the Workers Compensation Act, according to an Illinois appellate court.

The employee was subjected to verbal and physical sexual advances over a five-month period by her immediate supervisor. She was forced to engage in non-consensual intercourse on at least five occasions at work and elsewhere. The employee failed to report this conduct because she was afraid no one would believe her and she was afraid of losing her job. However, after hearing another female co-worker had filed sexual harassment charges against the same supervisor, the claimant reported her incidents to the supervisor's superiors.

Thereafter, she became very emotional, could not sleep and was frightened to be at work. She was diagnosed and treated for major depression. She filed for and was awarded benefits by the Industrial Commission and a trial court.

The employer appealed, claiming that the employee had suffered no physical trauma from which her present psychological condition could have arisen. The appellate court agreed with the conclusion of the commission that five acts of non-consensual sexual intercourse between the claimant and her supervisor were in the nature of physical assaults upon her, and her psychological injuries were, therefore, caused by a physical contact or injury. This was sufficient to meet the requirement of physical contact necessary for the "physical-mental" trauma theory of recovery, according to the court. The award of benefits was affirmed.

These abstracts were prepared by Mayo H. Stiegler. Copies of these decisions are available by sending a $10 check for each opinion requested, payable to Mayo H. Stiegler, to Business Insurance, 740 N. Rush St., Chicago, Ill. 60611-2590. List the number for each opinion.